Bathurst Resources Limited (BRL) Earnings Call Transcript & Summary

Hi. I'm Richard Tacon, CEO of Bathurst Resources. Welcome to the webinar covering our half year results presentation. We have tried this out with the Annual General Meeting as well. And hopefully, we can refine this as we go further forward. So again, as we did with the AGM, please feel free to ask questions. What we'll do is we'll compile them at the end of the presentation and come up with an announcement. That's fair to all the people who have got interest in Bathurst, who actually can't attend this webinar, and it really allows us to fully answer your questions as we go further forward. So we'll get started. And the disclosures. Obviously, we're talking about -- mostly about the expected results or guidance. So there is some factors that can influence that guidance. All reference to dollar figures, New Zealand dollars unless stated otherwise. We have got about 191 million shares on issue, $0.90 share price at the end of January, giving us a market cap of about $172 million today. Very little debt, only some lease finance and about $130 million in the bank. Really not a lot of change in our share demographic. Obviously, we're sort of heavily influenced by Asian shareholders, which is fantastic. New Zealand and Australian participation hasn't really changed over the last 6 months. The Board and the management team that sits behind the company. Peter Westerhuis is our Non-Exec Chairman; myself and Russell Middleton, are Executive Directors, Russell's Finance Director; and Non-Exec Director, Francois Tumahai. Leadership team is largely unchanged. We've got a new addition with Terry Moynihan Morning coming in as the General Manager of Resource Development. And as we see further forward into the presentation, that position is becoming more and more important. But a lot of intellectual property in the leadership team and in the Board, and we're very lucky we're not getting any sort of large turnover in those areas. Following our safety journey, again, as we sort of reported for the full year results, during the latter part of 2023, we are still sustaining a number of mainly soft tissue injuries, mainly short duration return to work, but we are definitely not satisfied with our statistics. Again, we are getting a lot of workplace soft tissue injuries. Manual handling and the other sort of important aspect was around entry and exit from machinery. We've had a major program of looking to eliminate as much as possible climbing on gear where you're not actually in a structured or a mechanized ladder framework, which has been quite difficult for things like graders and some of the bulldozers, but we're working through a program now to replace all of the entry points and exit points from those parts of equipment over the next 6 months. And then also looking at the various other tasks that we do carry out, taking into account, again, the fitness levels and the age of our existing workforce, and trying to engineer out as much as possible the major points of manual handling. And as we all know, social license to operate, whether it's a mining company, whether it's an alliance club is very important. And it all comes back to having engagement with our communities and having good support from those communities, which then flows through into elected officials and ultimately into regulators. So last year, we ran a bit of experiment. We had an Open day at Takitimu. It was very well patronized over 1,500 visitors. And we're looking to now trying to roll that out. It was really good to see that grassroots support for our existing mining operation. It was a chance for us to showcase our rehabilitation efforts in particular, where basically we've got a less than 10-year mine life in terms of the time when the first topsoil has taken off a paddock and until it's actually back into full production. In this case, with Takitimu, it's forestry and farmland. But in the case of some of our other operations, it's bush and rainforest. So again, some of the techniques might be slightly different, but the end results are the same, extract the mineral and then return the country to as close to natural state as possible or close to an economic development state. With the half year results, we've seen a significant impact in revenue and really two main impacts there is a reduction in the average price because of the coming -- the export market sales price coming down from what was extraordinary heights that we hit during the 2023 year. And we are still seeing good pricing, and we're still well and truly over USD 300 for the international coal prices as we will look in a minute. The other major impact was we had a 6-week outage in the Buller Gorge, which is where the rail line goes through to take our coal from the West Coast Stockton mine over to the East Coast port, which resulted in us having to rearrange the shipping schedule. We are, though, very confident that we're still going to get 1.2 million tonnes sales for the year. And so again, we're confident we're going to be able to maintain the guidance that we put out in terms of our full year EBITDA. Really a snapshot. This was sort of a snapshot taken at the end of January. We've got about $130 million cash attributable to Bathurst. As I said, 0 debt apart from some minor lease finance. We are going to generate somewhere between $95 million and $105 million EBITDA for the full year. And at the end of December, we had a net asset carrying value of about $1.45. So the company is in good standing. And then on top of that, we've had the exciting addition of the Tenas project, which again, we'll talk about a bit more detail and also some quite interesting changes within the New Zealand political landscape, which again, we'll talk when we talk about our project. All of our production still comes out of New Zealand. We're producing about 2 million tonnes, about 1 million -- just a bit -- a little more than 1 million tonnes will go into the export market for the full year and about 1 million tonnes gets consumed internally. And of that, around about 60% of that coal internally gets used into steelmaking. So our focus is becoming more and more in steelmaking, whether it's a combination of the export and the domestic use of coal. And then in particularly with our projects, with the two projects now in Canada, ultimately with a supply capacity of around about 3 million tonnes per annum, the two really exciting projects in British Columbia. In New Zealand, we haven't really changed the landscape there too much. We've got two mines in the North Island, Maramarua and Rotowaro. They produce a subbituminous that goes into the agri business and also into steelmaking. Stockton on the West Coast of South Island is 100% export, hard coking coal going into a variety of customers in Japan, South Korea, India and China. And again, the coal coming out of there is very low ash. It's mostly less than 5% ash, high bitumen content, which is a reactive part of coal. And so our customers are seeking that to be able to really use then less of, say, an Australian coal or a Colombian coal or in the case of India, domestic coal, which saves them some money, but it also means lower emissions per tonne of hot metal being produced. And then our Takitimu mine, right down the deep South and our [ North Island, Waikato ] is producing coal that goes into the process heat market. So again, that's the agribusiness. Sector with dairy, abattoirs, food processing, flower growers, that sort of parts of the business. So with Canada, obviously, we've just closed the deal and finalized the deal just prior to Christmas with the Tenas project, but we have also got the long-standing project in combination with Jameson in the Crown Mountain project. So again, we'll cover a bit more detail of that as we go further forward, but we are growing on that investment in time and money that we made with the Crown Mountain project. If you remember, we got back -- we got in there in 2018, we sponsored the drilling program. We got to know the coal. We got to know the structural geology of the Rocky Mountains. And then also an important part following on from that was the sponsoring of the environmental assessment process again, which then allowed us to really get into British Columbian consenting and also ultimately permitting. So what that allowed us to do when we came across the Tenas project, we could actually quite quickly move through the due diligence and realize that we had quite a gem. It's a small project on international standings, about 1 million tonnes of production, but it's still a really a new jurisdiction, if you like. There's no mines in the mountain area, whereas in the Elk Valley, obviously, we are in the middle of the tech run operations. We're a very small part of that overall valley, but there is a lot of cumulative effects, whereas with the Tenas project, we are the only mine actually in the area, even though there's a lot of miners actually in the two towns that support the overall project area, most of those are fly in, fly out. So our earnings have been strong since FY '18, which is what we depicted here, which was the transformational year when we went from being a 100% domestic producer only with the advent of the acquisition through BT Mining, ex Solid Energy assets. Obviously, we are highly dependent on international coal price, but we have also still got the underpinning natural hedge of the domestic business. So 92% of our revenue this year will come from steelmaking. Again, that's not by default. That's a deliberate strategy. We are seeing a change in the demographic within New Zealand. We've seen some businesses that are just shutting up. We've seen some businesses that are converting their fuel sources from coal to wood waste or to electricity. But we are also seeing the strengthening of the business that we've got with the likes of New Zealand Steel and some of our other domestic customers that have got no other alternative but to use a safe and economic product like coal. As I said, we are still anticipating that we're going to meet the guidance of around $105 million for the full year. The biggest impact against last year, as depicted is the change in the export price coming down from those extraordinary highs. But we are -- with the combination of some judicious hedging, and also the fact that the pricing is staying very flat, we are pretty confident that we're going to be meeting that guidance figure. Not a lot of change within the North Island, South Island domestic. Obviously, we now started spending some money on Telkwa, which is great. It's all being money spent towards taking the project forward. But as we move further forward, I think if we look at where the forward curve in particular, if we just jump forward a couple of slides, yes, it's very flat. We're sort of seeing a bit over USD 300 for the spot, which is now building into a benchmark being the average of that. And we have managed to lock in some hedge positions for around about 40% of our production going forward in combination with FX hedging at that time, up around the NZD 500. So just sort of moving back, what are we going to do with that cash? Obviously, we've got a number of avenues that we can go down, maintain and optimize our existing operations. That only takes a very small amount of cash, probably somewhere around about $20 million in terms of sustaining CapEx, mainly replacement of equipment and upgrades and things like wash plants and that thing and also moving into new areas. We have got these projects, and we do want to make sure we've got a nice strong balance sheet. As we know over the past few years, it has been particularly interesting at times trying to get funding for coal projects in particular, but even mining projects overall. So we are looking to try and keep a healthy amount of cash on our balance sheet so that we can develop these projects as they come into later stages of permitting. And also, obviously, we would -- we definitely do want to consider return to shareholders. So looking on a medium-term basis, we've got the Tenas project. We've got the Crown Mountain project. We'll talk about the timing of those, but we are looking to be spending around about $4 million to $5 million a year on the Tenas project over the next couple of years as we go through into the early stages of the assessment phase. Crown Mountain will be probably a little bit less than $1 million. And then we've also got an exciting pipeline of growth projects and extension projects within our existing operations, which allows us a nice long tail of development and obviously, consistent cash flows. So with our share price being where it is at the moment, at the present time, sub $0.90, we do see a share buyback as being a good use of some of that cash. But really, it's a matter of assessing where we're going to be in the next 6 months with the overall coal price, but also where we're up to with these projects as we move into the final stages of development of them. The export business, we're going to do about 1.2 million tonnes, which is pretty consistent where we've been in the past. Obviously, we were down a little bit through the later of the COVID years, and we see that being maintained for the next 5 or 6 years out of our existing holdings with a number of projects that we can then bring on to extend that life out past 2040. So we are going to see a reduction in overall earnings this year from export, again, totally driven around the pricing. We've seen a flattening off in inflation forces on our costs. We're still quite a bit higher than what we were going back a couple of years ago, but we're not seeing the significant rises that we saw in, say, parts, there was over 42% increase in the parts value. Obviously, fuel has been floating around, explosives and that sort of -- we've managed to maintain quite reasonable increases in terms of labor, obviously, realizing that we are competing in some ways for some of our operators into some large infrastructure projects in New Zealand, but also with the ability for people in New Zealand to travel quite easily to Australia. So we have had to increase our wage base, but I think we've managed to maintain that into a reasonable level. We [indiscernible] the coal price, I mean that supply and demand is really tight. I mean that's probably the key picture. Even small changes in supply with some of the larger companies say going into longwall moves and/or if there's cyclonic effects in Australia, for instance, we are seeing a spike in the pricing. We're seeing China coming back into the market. India probably has been the shining light. We've had a number of customers sort of change over in India, but there is still strong demand and the Indian government is still very much looking to lift capacity to up to 300 million tonnes of steel production in target by 2030. So that equates to a hell of an uplift in coal use within India. Obviously, India has got domestic coal supplies, but they do tend to be on the higher ash end of the spectrum. So low ash coals like our coal fits nicely into the blends with those Indian customers. Domestic business, yes, we've seen a dropping off of tonnage. We've seen some of our major customers converting to alternative fuels, whether it be gas, whether electricity or wood products. We've seen some of the customers drop out, particularly on the small end of the market. The Emissions Trading Scheme in New Zealand is driving some of that change. But we're also seeing some real strength in the steelmaking side of it and also in some of our other value-add to prime production-type businesses. So we're anticipating that we are -- our earnings are going to increase back to levels around FY '22 over the next couple of years. We have been doing a lot of development of our Rotowaro and Maramarua mines, and we are in the final stages of the production out of the Takitimu mine as we'll see in a minute. So we will have then some really low strip ratio aspects for that mine. So we'll be generating good profits. So just a really quick snapshot across the domestic business. Takitimu, again, supplies that process heat market, value-add to New Zealand prime production. It's going to generate about $12 million of EBITDA this year on the back of about 220,000 tonnes of production. Rotowaro pretty much 100% supplies New Zealand steel. Maramarua supplies about 3/4 of its coal going to New Zealand steel, the remainder in the process heat market. And again, both been through quite extensive periods of development of the new blocks as we've got sort of depleting older blocks, but also getting new consents. With the export market, we've got two projects. None of them are new. I mean the Stockton project has been around now for us for about 14 years. We originally purchased in 2010. With the change in government, we are seeing a major change in the messaging and the rhetoric coming out of the [indiscernible]. So a lot of focus on economic development, a lot of the announcements coming out from government that they're looking for enabling legislation. There were some quite large changes made to the resource management framework in the latter days of the last government. Two of those sort of major pieces of legislation have been unwound by this government within a few weeks of them being formed, and they are looking to bring in a fast track for process for infrastructure, including mining. So again, it's a different flavor. It's a different feel than what we had over the last 6 years. We've got good relationships within the government. So we are looking to try and be part of that economic development story that will take New Zealand's economy forward. So that's sort of -- so we've got the Mt Fred, which is a southern extension of Stockton, and we've got the [indiscernible] project, but also there's a western extension of that, which has been held by the company since 2011. On the domestic front, it's mainly around really shoring up a long-term supply for New Zealand steel. So we've got a Rotowaro extension, which is looking at 12 years at around 400,000 tonnes, again, centered around that supply of subbituminous coal into the iron making process for New Zealand Steel. And then Maramarua, again, we've just got a new consent for the M1 pit. That was severely impacted by some changes in legislation that was made in the middle term of the last government. Those changes have now been unwound. So we can now look to apply for a bigger footprint. And we're looking for that supply to begin to use to blend with Rotowaro to go into the New Zealand steel. How that translates into where we're going to be in 3 or 4 years' time. At the moment, around 2 million tonnes of production. We're going to maintain that for the next 3 to 4 years within our existing permits within our existing footprints. But then as we've seen, we've got expansion projects that will allow up to 2040 for the North Island, both between Maramarua and Rotowaro. And just as importantly, with the export business, again, we've got a tail on the existing holdings in Stockton, including the Waimangaroa Valley, but then also bringing on these other projects with the Stockton and the Mt Frederick South extensions, which will then take forward around about 1.1 million, 1.2 million tonnes of sales, again out to 2040. And those New Zealand-based projects don't require large [ slicks ] of capital for infrastructure. It's really only a matter of some initial buildup of stocks and then getting that coal into the market. So we're looking at very large continuation of EBITDA but really a small upfront capital. So looking at the Canadian projects at the present time, given where we are in the project approval phase, we believe Tenas is probably going to be about 12 months in front of Crown Mountain. So coming on stream in '26 to '27 and then Crown Mountain following that in from '27 to '28. Looking at the Canadian assets, we were looking to try and increase, obviously, grow the company and increase the amount of coal that we were going to be selling into the steelmaking market in particular. Obviously, we looked at Australia. It's one of the better jurisdictions in the world for particularly coking coal. But the hurdles for us getting in there is obviously the upfront capital cost in some of these acquisitions, but also getting hold of ground that's in the top tier of the product structure rather than being at the lower end. So we wanted to maintain our position with our existing customer base where we can supply high-grade products. So we looked at the Crown Mountain project, obviously, as we've said, that started back in 2018. And then with the acquisition of Tenas, which really didn't take a lot of time for the knowledge that we've built up. But I think we've come across a project that is both very achievable, but it's also quite cheap to get into and will always be a lower-cost producer. It's the closest coal to port within British Columbia, only being 300 kilometers versus 1,500 kilometers. It's well supported by port and rail capacity, and by a local community that's looking for jobs with the changeover away from some of the forestry areas that have been grown up over the last 5 years within that local area. They see the mine coming along as being a valuable addition to their overall economy, which includes sort of agriculture, tourism, forestry and now mining. Tenas. USD 300 million EBIT -- sorry, NPV. It will always be a low-cost producer. The strip ratio over the whole project is only about 3.5. Our initial phases will be actually less than 1. So 1 bank cubic meter per tonne of coal. So our sort of the upfront cost to get into this will be around about NZD 1 million. So we paid $3.3 million to the vendors. The next tranche of payments do not occur until we've actually got all the final permits. And then 12 months after we got the final permit. So there's a USD 4 million payment and USD 4 million -- USD 3 million payment after we've actually already got established. So we are -- I mean we've got a project team that we've got as part of that project and obviously working obviously with Jameson as well with the Crown Mountain project that allows us to build up quite a strong team and look at some synergies across that two projects. So Crown Mountain, just under $500 million NPV. That was based on a DFS at the time that was using $155 as a long-term coal price. We have seen pressure on costs right across the world. So our cost per tonne is slightly higher than what it was under that DFS process. But we're looking at around about $300 million spend. We need $121 million to take ourselves up to 50% share, which will occur when we've got all the permitting and we've got the project finance in place. So that's totally at our discretion. We've got 22% of that project at the moment. We're very happy with our carrying capacity of that. Now that's looking to be around about sort of NZD 500,000 or NZD 600,000 per annum over the next couple of years as we go through the consenting process. I mean both projects are well supported by rail and port capacity with Crown Mountain project having rail access to rail that takes us through to Vancouver with access to two large coal ports there. And again, as we've already said with the Tenas project, there's ample capacity within the Ridley coal terminal. So that really brings us to the end of the presentation. As I said with the questions, we're more than happy to take questions. Please record them as part of the log on, and we will get an announcement out with some answers to that very soon. So thanks very much again. Yes, I look forward to seeing those questions. Thanks a lot.